Foreign criminal syndicates are estimated to have stolen tens of billions of dollars in pandemic relief funds, and a new report from the inspector general sheds light on how it happened.
The Small Business Administration watchdog says the agency tried to block foreign applications for its Economic Disaster Loans (EIDLs), one of two main programs aimed at supporting businesses during the early pandemic shutdowns. .
But thousands of requests filed from foreign internet protocol addresses still passed through the SBA firewall, forcing the agency to issue about $1.3 billion in payments the inspector general ruled. high risk of being fraudulent.
Filing from abroad is not an automatic signal of fraud or illegal payment, but it is a major red flag, the Office of Inspector General said.
“The numerous requests submitted from foreign IP addresses are an indication of potential fraud that may involve international criminal organizations,” the inspector general said in announcing the investigation Monday evening. “The OIG is conducting ongoing investigations into international organized crime operations that solicited and stole pandemic relief funds.”
The audit did not delve into those investigations, but foreign criminal syndicates have been identified in massive amounts of fraud related to U.S. pandemic spending.
There were three major relief packages: expanded unemployment benefits, which totaled about $900 billion; the SBA’s Paycheck Protect program, which provided about $800 billion in forgivable loans to small businesses to keep them afloat; and EIDL, with approximately $342 billion in business loans, grants and advances.
Unemployment benefits were particularly vulnerable, with few early checks to weed out false claims. One estimate puts total unemployment fraud at over $200 billion, with international criminal syndicates likely accounting for well over $100 billion. Much of that money went to organizations linked to America’s adversaries in Iran and Russia.
SBA programs were a little harder to scam, though early estimates were still in the tens of billions of dollars, and the new inspector general’s report captures some of that activity.
The audit found that the SBA eliminated “millions of attempts” to submit EIDL requests from foreign IP addresses.
The audit found that SBA officials were aware of the potential and took steps to combat it with a four-tier defense.
The first layer was a firewall that was supposed to block apps from six countries with a history of fraud. The second layer was another firewall that was supposed to block any application with a foreign IP address.
Layer three was supposed to flag any foreign IPs that still passed, and layer four was a personal review by a loan officer.
The audit revealed that foreign IP addresses could access the lending system more than 233,000 times.
Nearly 42,000 applications from overseas addresses were accepted and granted, totaling $1.3 billion in loans, grants and advance payments.
When auditors went back and examined 50 requests that passed through the firewall despite coming from foreign addresses, they found that 16 were not flagged by the third layer of defense, and of the 34 flagged, the loan officer’s in-person review missed 15 of them.
The SBA and the contractor it hired to process the requests said they were confused about how foreign IP addresses were able to bypass firewalls, the audit found.
In a formal response to the audit, SBA Associate Administrator Patrick Kelley sought to put the numbers in context.
He said successful foreign intellectual property applications made up only 1% of all approved EIDL cases and that the SBA did a particularly good job of weeding out applications from the six high-risk countries, which the report did not find. appointed.
And the $1.3 billion in overseas disbursements represented less than half a percent of EIDL’s total expenditure.
Mr Kelley also said the system was put in place at a time when experts were warning of an impending economic collapse as the pandemic shutdown began.
“As a result, the initial focus of SBA’s COVID relief programs should be to provide financial relief as quickly as possible to respond to the crisis,” Kelley wrote. “While great speed was needed to develop the COVID EIDL program and to provide this economic relief to millions of small businesses affected by the pandemic; we don’t believe there is a trade-off between speed and fraud checks.
The SBA generally agreed with the inspector general’s recommendation to go back and review all applications of foreign IP addresses that came through the system and determine which ones were actually bogus. The agency said it would try to recover the money.
Nigeria, known for harboring sophisticated and determined fraudsters, led the way among foreign IP address requests with 33,477 submissions. Of these, 241 have been approved, totaling nearly $20 million.
Canada led the way in terms of dollar amount, with $183 million paid out of 3,755 claims. A total of 20,500 were submitted from Canadian addresses.